Each year we review the five-year trend in merger cases filed with the European Commission (EC). From this, it's clear that merger control continues to play a key role in the EU and UK regulatory landscape for M&A activity, alongside foreign direct investment regimes and new reforms due in digital markets. Given the volume and complexity of cases, developments in merger control can seem daunting. But we've identified some of the key trends from EC-filed merger cases in the current period.
Since 2018, there has been a significant increase in the number of suspensions of phase two investigations with 50% of cases in 2021 and 85% of cases in 2022 to date requiring one or more suspensions compared to c.40% in 2017 and 2018.
In respect of those phase two cases with lengthy suspensions (two or more) since 1 January 2020 the majority of cases have been abandoned, perhaps pre-empting a prohibition.
The number of cases abandoned at phase one and phase two continues to climb, as shown in our chart. At phase one, early signs of competition concerns may have led to parties reassessing the likely regulatory hurdles and potential cost or likelihood of clearance. At phase two, this may indicate that parties were willing to enter into remedy discussions but that these proved insufficient. Parties then either decided the deal was no longer attractive if further concessions were required or perhaps pre-empted a decision by the EC to block the transaction.
While no deals were prohibited in 2020 or 2021, again this may reflect the parties pre-empting the EC’s decision.
In 2022 to date, one case – Hyundai/Daewoo – has been prohibited after three suspensions and a case investigation period of 51 months. The parties did not offer remedies and are looking to appeal the decision.
There were 88 full form filings in 2021, compared to 83 in 2020 and 94 in 2019. However, a significantly higher percentage of these cases were cleared at phase one (86%) compared with previous years (71% in 2020 and 64% in 2019).
It's clear that, throughout this five-year period, divestment has remained the most popular remedy. This trend is in line with the EC’s viewpoint as set out in its merger regulation.
The requirement for an upfront buyer remains high, with 40% of divestment remedies requiring one in 2021 (57% in 2020 and 23% in 2019).
In respect of non-traditional divestment remedies, 2021 only saw one case with behavioural commitments only. In this case, the commitments ensured the interoperability of the companies’ medical imaging and radiotherapy solutions with third-party solutions (Siemens Healthineers/Varian). LSEG/Refinitive saw a combination of divestment and behavioural commitments to ensure the relevant markets remain open and competitive.
Over the five-year period, there have been 21 cases that have seen remedies agreed by more than one merger control regulator. Only one of these (S&P/IHS Markit) related to a parallel EC/CMA investigation.
Last year (2021) saw the first year of the Competition and Markets Authority's (CMA) post-Brexit role in the review of mergers. There were 12 EC/CMA parallel merger investigations opened in 2021. While at a lower level than predicted, the number of investigations may have been impacted by the pandemic; as M&A activity recovers, it's possible that the number of parallel investigations will increase.
In respect of the 12 investigations, six were cleared at phase one by both the EC and CMA. Three had identical outcomes: phase one divestments (S&P/IHS Markit) and two deals abandoned (IAG/Air Europa and Nvidia/Arm). Three had divergent outcomes:
As parties balance the merger control process in multiple jurisdictions, and with other regulatory processes in play, it's important to have experienced advisers to navigate them through the process. While 2021 saw an upturn in activity as the pandemic started to unwind, the significant number of suspensions had an impact on the speed of decisions and perhaps activity levels can expect to rise further in 2022.
In terms of key trends to look for this year, 2021 has highlighted the following:
If the high level of cases subject to multiple suspensions continues, this will affect the timetable for completion of the merger.
There is the risk of potential divergence of outcomes in EC/CMA parallel investigations. There's also the risk to parties in racking up costs with mergers that are then abandoned as a result of the need to offer remedies that result in the merger no longer being viable or the prohibition of the merger by one of the two competition authorities.
The use of Article 22 (updated in March 2021) means the EC actively monitors and can “invite” member state referrals of acquisitions, included completed acquisitions, of high value targets with low value turnover (and therefore not normally meet threshold for referral). Such 'killer acquisition' referrals are thought to catch acquisitions in the tech and pharma sectors. While this hasn't led to an influx of referrals, in the case of Ilumina/Grail – which completed following the referral – it has led to the imposition of interim measures following completion of the merger during the phase two investigation.
Digital markets in Europe will be under greater scrutiny. In the EC, the proposed Digital Markets Act will require 'digital gatekeepers' that fall within its scope to notify all transactions involving digital services (and possibly also involving data) to the EC. In the UK a planned new regulatory regime for digital markets would force firms with 'strategic market status' to inform the CMA of all mergers.
Foreign direct investment continues to remain a hot topic across Europe. On 4 January 2022 the UK’s new foreign investment regime came into force with mandatory notifications required, which we anticipate will lead to more potential investigations and remedies.
If you'd like to understand more about our annual review or our competition and monitoring services, and other advisory services, contact Craig Reed or Katy Mattingley.
